1. Good afternoon. Welcome to this meeting of
the Committee on Public Accounts. This afternoon we welcome Mr
Peter Gershon, the Chief Executive of the Office of Government
Commerce, and his colleague, Mr Hugh Barrett, who is the Executive
Director. They are responsible for initiatives to improve departments'
performance as purchasers of professional services. Welcome.
(Mr Gershon) Thank you, Chairman.

2. Can I start with really a very simple, general
direct question. Why, given the Civil Service employs over 3,000
specialists who provide professional advice and assistance, do
departments need to spend £610 million a year on purchasing
professional services?
(Mr Gershon) I think there are a number of answers
to that, Chairman. Firstly, I think the demand for specialist
expertise in a number of areas exceeds the supply of skills that
are available in-house, both in terms of quality and quantity.
Secondly, in a number of areas I think it is not possible for
a number of reasons for the Civil Service to retain experts who
may have relevant expertise who are sought by departments to give
advice in particular situations.

3. Obviously. You are satisfied that figure
of £610 million is justified, are you?
(Mr Gershon) Clearly the report indicates that there
is room for improvement in how that money is spent and there is
opportunity to get better value for money for a number of areas.

4. The Efficiency Unit's Scrutiny in 1994 recommended
savings of £65 million a year in departments' use of external
consultancy services but paragraph five suggests that seven years
on these savings have not been achieved. Why has progress been
so patchy?
(Mr Gershon) I think there are a number of reasons
for that. Firstly, I think in my own experience, Chairman, the
private use of professional services is an area where there needs
to be sustained focus. As you may be aware, I have only been in
the Civil Service for the last 18 months when the OGC was created
but, talking to various people who have been around since the
time of the 1994 Report, my sense is that in some departments
that focus waned over time. In a number of departments, as identified
in the report, they did have sustained campaigns to follow through
the actions from the 1994 Report. What we are about now is trying
to rebuild a sustained focus, that will pay attention to this
important area of public expenditure.

5. Perhaps others may want to come back to the
extent to which departments have taken this to heart. Can I ask
you another question. Paragraph 2.10 shows that nearly a third
of professional services contracts were awarded on the basis of
single tender or through informal price tendering. How can you
persuade departments to increase the number of contracts which
they award competitively?
(Mr Gershon) There are a number of actions that we
are taking in conjunction with departments. Firstly, I think there
is scope for increasing the range of framework agreements which
make it easier for departments to procure services competitively,
particularly when there are short timescales involved. For example,
at the moment, although there is the SCAT arrangement, which includes
certain categories of management consultancy, there are no comparable
arrangements in place at government level for other categories
of professional assistance, such as legal services, human resources
and accountancy. We are looking to put in place framework agreements
of that nature. Secondly, I am in discussion with departments
about how we might improve the scope of controls within departments
in a way that makes single tender action much harder to take.
I think in some areas the delegations of authority probably make
it too easy for single tender action to occur. I think there is
general agreement now that we need to take steps so that much
higher levels of approval should be sought where people believe
there are special cases for taking single tender action. Clearly
this is a matter of concern that we need to address. It is one
of the constant features between the 1994 Report and the NAO Report
that the percentage of single tender actions remains basically
unchanged and we need to address it through the mechanisms that
I have described to you.

6. I am pleased you are not coming back with
the excuse that competitive tendering is not appropriate for smaller
contracts because, of course, as we know from the report, only
12 per cent of the contracts were under £10,000. Can you
answer a question on the framework agreements which you have been
dealing with so we will go straight into that. They do seem to
offer a number of benefits, as you have said. What mechanisms
are in place to enable departments to identify opportunities for
combining common services, such as legal advice, which are suitable
for purchasing through framework agreements? Are you satisfied,
following on from what you said in answer to the last question,
the departments are taking this seriously and moving this on?
(Mr Gershon) I am satisfied there has been a lot of
renewed attention on this area following the NAO Report and that
has created the environment in which we are now having, as I said,
very serious discussions with departments about how we can extend
the range and the scope of both existing and proposed framework
agreements which would enable us to get better discounts, for
example, through techniques such as aggregation.

7. Have you got any information on any additional
price gains that you have made from the framework agreements?
(Mr Gershon) If you take the SCAT arrangement as an
example, the discounts there go up to about 20 per cent. In the
management consultancy area, we are looking to have a refresh
of the arrangements which should be in place by next March and
I am hopeful that it will be possible in some areas to get better
volume discount arrangements.

8. Paragraph 2.17 refers to the considerable
variation in the quality of departments' information on professional
services, the amount of business awarded to different suppliers,
their fee rates and quality of services delivered. Departments
in responding to the NAO survey were also unable to allocate 43
per cent of their expenditure to any particular category of professional
services. How can departments secure better deals from suppliers
when they do not monitor such basic information to compare prices
and the quality of service which they receive?
(Mr Gershon) Firstly, I would like to point out that
this issue about the quality of management information systems
was identified in the review that I did for Ministers on the subject
in 1999 and, ultimately, the way we fundamentally resolve this
problem is as departments implement more modern financial and
management information systems which, as a by-product, will allow
this sort of information to be provided. Recognising that we had
to do something in the short term to get a better handle on this
problem, we have for the first time just concluded an analysis
based on looking at the data that departments have provided us
from their accounts payable files which, for the first time, does
enable us at the government level to have a better picture of
the total amount of government expenditure, which suppliers it
has gone to and the broad areas of expenditure. That has recently
been completed and we are now commencing a number of analyses
to look at what is in the database. One of the things we will
be doing is trying to do further analysis on the expenditure in
the database on the whole area of professional services, and I
hope that the results of that will be available by the end of
December.

9. But you have not said whether you are worried.
You must have been worried about this figure of 43 per cent. How
can they negotiate better deals when they simply have not got
the information?
(Mr Gershon) I would hope the data analysis work I
have just referred to will give us a better handle. I think it
will because we do now have better analysis of data based on accounts
payable information at both departmental and government level,
but when that analysis is completed in Decemberand I cannot
say with confidence as to what we will be able do as a result
of itI think we will have better information than we currently
have.

10. The NAO Report suggests that there are significant
financial savings to be made in the purchase of professional services.
What are you doing to encourage departments to secure these savings?
(Mr Gershon) Following the NAO Report we had a discussion
with the departmental heads of procurement which resulted in a
submission going forward to the OGC Supervisory Board which is
chaired by the Chief Secretary and has about half the departmental
permanent secretaries sitting on it to represent the departmental
community, and that agreed an action plan as to how government
collectively was going to take forward the implementation of the
NAO recommendations. That action plan includes things like extending
both the range and scope of framework agreements. It includes
departments developing their action plans as to what they are
going to do themselves, which we are going to monitor. My Supervisory
Board has agreed that the whole situation is going to be reviewed
again in terms of progress at the meeting it will hold in the
summer of next year.

11. Are you satisfied that the Civil Service
has the level of expertise necessary in this field?
(Mr Gershon) I think one of the areas the NAO Report
has identifiedand it reinforces a recommendation I made
in my own 1999 reviewis that there are areas of procurement
where professional procurement staff can add considerable value.
I think in a number of areas of procurement of professional services
they have been done without the involvement of professionals who
have got recognised qualifications in procurement. The NAO highlighted
this, and part of what we will be looking for in the departmental
action plans is the extent to which they propose to involve professional
procurement staff in procurements of this nature in the future.

12. The NAO Report also suggests that departments
can make further savings of £15 million by more collaboration
between departments to take advantage of volume discounts and
by use of more appropriate forms of contract. What steps are you
taking to encourage departments to do this?
(Mr Gershon) Extending the range and scope of frameworks
is one of them. We are going to have a number of discussions with
the departmental heads of procurement as to what else we can do
in terms of, for example, sharing informing between departments
about fee rates. We will be drawing the attention of departments
to reinforce the recommendations in the NAO Report that in some
areas it is appropriate, for example, to look at some form of
incentivisation basis, rather than just looking at hourly rates
or looking at capped fee arrangements, to provide greater discipline
and control in this area of spend.

13. I think what worries the Committee is that
this report was published in the early summer and has a great
deal happened even since then?
(Mr Gershon) I think a lot has happened since then.
Firstly, we have been developing an action plan as to what we
are going to do and getting the buy-in of all the departments
to that action plan, launching the re-competition of the SCAT
arrangements and now starting the planning for other framework
agreements in areas such as legal services. We are beginning to
look with the legal profession at developing a best practice code
similar to the one the Treasury put in place with the Management
Consultants' Association and the Institute of Management Consultants
about how to get the best value out of using management consultants.
We have just had the results of our data analysis and as I say,
we are beginning to do further analysis on it to give us a better
insight as to where the money is going. We are beginning to have
dialogue with some of the key suppliers in this area, bringing
together government's perception about the performance of suppliers.
Clearly there is a lot to do and my view is that we have made
a good start but the results of that will take some time to come
through.

14. You think you have made progress from when
paragraph 3.4 was written. That refers to departments' inability
to specify clearly what they want from the external experts, evidenced
by often poor and conflicting terms of reference. What incentives,
apart from what you have mentioned, are in place to encourage
all departments to adopt good practice?
(Mr Gershon) There are a number of documents setting
out advice and guidance in this area. There is the code of best
practice that has been agreed with the Management Consultants'
Association and the Institute of Management Consultants. Particularly
in the larger, more complex procurements which involve demands
for professional expertise to support those procurements, those
projects which are in the early stages now are being subject to
the gateway review process, and as part of those gateway reviews
we look to see whether departments have a clear view as to how
they propose to use external advisers and whether they have the
balance right between their internal resources and their proposed
use of external resources so we can highlight to departments at
an early stage if corrective action is needed.

15. Can I ask a question of the Treasury before
I finish and it goes back to the very first question I asked relating
to the £610 million we are spending on professional services;
what benefits do you think departments are deriving from this
very great expenditure? Does the Treasury think all this expenditure
is necessary? Are you getting the right feedback from departments?
Are you satisfied that departments' own professional services
are keeping a close eye on what is going on?
(Mr Glicksman) As far as feedback from departments
is concerned, we would look to the OGC who have got the procurement
expertiseand the OGC is part of the Treasuryto keep
their eye on that. As far as the figure is concerned, I think
that we are supportive of the view that the OGC have taken. The
advice from the NAO in their report that there are savings to
be had here is a valued view and we will be looking to OGC to
try and ensure those savings are secured.

Chairman: I am not sure you have answered the
question but no doubt others will want to come in on this. Mr
Barry Gardiner?

Mr Gardiner

16. Mr Gershon, I perfectly understand what
you said about demand exceeding supply for both quantity and quality
in response to the Chairman's first question of how you justify
this £610 million given the number of people employed. I
take it what you are saying is that if you want to get the very
best professional advice in an area, it is difficult to retain
that in a department of government where inevitably one is forced
to be more generalist in nature rather than to specialise and
therefore you need to buy in that speciality from outside. What
I am keen to find out from you is when you do buy in that specialist
knowledgeand here we are talking about the quality rather
than the quantity side of the remarks you madewhat system
do you have for monitoring the quality of delivery because it
seems to me that one of the great dangers we have in Government
is that if we do not have the internal expertise within the department
in the first place, and we have to buy it in, it is also then
very difficult to be able to evaluate the quality of what we are
getting?
(Mr Gershon) The central advice that has been issued
to departments encourages them, for example, to take up references
from potential suppliers about other relevant work that they have
done. In summary, that might mean with other government departments
or it may be a piece of activity where it is more relevant to
get a reference from experience that consultant may have had in
the private sector. It is very clear that there should be, for
example, clear milestones set at which there can be reviews with
the supplier of the services as to whether he is delivering a
quality output or not. There are recommendations that there should
be post contract reviews so at the end of the assignment there
can be an assessment made as to the level of the satisfaction
overall. That is something then that can be used by other government
departments in the future to take account of whether a particular
supplier of professional services delivered a good job in the
eyes of the customer in that particular situation. So there are
both pre contract mechanisms, mechanisms that exist through the
life of a contract, and post contract reviews.

17. What evaluation have you done of the successful
renegotiation of those contracts at the re-evaluation stage? Have
you actually looked and seen when we are monitoring the contract
and when we are reviewing the performance of the contractor and
we think that things are not going well, what changes have we
actually implemented at that stage? Have you done any research
on that?
(Mr Gershon) There is no central mechanism for monitoring
literally the thousands of contracts that exist with a whole raft
of professional services. Where there are, for example, contracts
let under central frame agreements, if a government customer is
experiencing poor performance or is dissatisfied with the performance
of the supplier then there are clearly mechanisms where he can
bring that to our attention and we would then seek to raise that
with the relevant supplier. I think one of the things that the
NAO Report has identified is that there is a need for more information
sharing, which we want to do through the departmental heads of
procurement network, which is now a well established network between
the OGC and departments, to use that so we can start to develop
a better picture, a shared picture across government about the
performance, certainly the performance of a number of key suppliers
of different types of professional services. That is very much
work we plan to do. There has been little of it done centrally
in the past.

18. That is something that you are looking at
prospectively rather than something which exists.
(Mr Gershon) Yes.

19. In that case I will back off from there.
One of the targets that the Chairman mentioned from 1994 in terms
of the savings targets that had been suggested there, I think
it was £65 million, has not been achieved, what targets do
you now have? What are the timescales for delivery of those targets
of achieving those savings and what programme do you have in place
to monitor your progress towards achieving it?
(Mr Gershon) I accepted the NAO Report which identified
the scope and I think that is a realistic target that we should
be aiming for.